Goldman Sachs has nearly doubled its estimate of the U.S. recession risk over the next 12 months, raising the probability from 20% to 35%. The upgrade reflects growing concerns as the country approaches the April 2 date set by the Trump administration to announce new tariff measures, a move that could prompt retaliatory actions from trade partners and amplify economic headwinds.
The bank cites three main reasons for the higher recession probability. First, its baseline for economic growth was already lower than earlier projections. Second, there has been a pronounced deterioration in both household and business confidence in recent weeks, suggesting weaker spending and investment ahead. Third, statements from White House officials indicate a willingness to tolerate some near-term economic pain in pursuit of policy objectives, which raises the risk that policy choices will further slow growth.
Goldman now expects a broad package of reciprocal tariffs averaging roughly 15% across U.S. trading partners, though it notes that product- and country-specific exclusions could lower the effective average over time. Anticipating the trade measures and their likely fallout, the firm has revised several key economic forecasts downward: it now projects 2025 real GDP growth of just 1.0%, a year-end 2025 unemployment rate of 4.5%, and core PCE inflation of about 3.5% by the end of 2025.
Given those conditions, Goldman Sachs expects the Federal Reserve to respond with a series of rate cuts in 2025. Specifically, the bank forecasts three consecutive reductions in the federal funds rate in July, September, and November, which would lower the terminal policy rate to a range of 3.50%–3.75%.
Overall, the combination of weaker growth expectations, falling confidence measures, and the prospect of new trade barriers has led Goldman to materially increase its near-term recession odds and to adjust its outlook for growth, unemployment, inflation, and monetary policy accordingly. Financial markets and policymakers will be closely watching developments around the tariff announcements and any ensuing international responses, as those events could further influence the economic trajectory.